Exponential Smoothing

Posted in Finance, Accounting and Economics Terms, Total Reads: 669

Advertisements

Definition: Exponential Smoothing

Exponential smoothening, as the name suggests, smoothens a time series data. In a moving average method, a simple average of the data points is taken over time. In other words, all data points are given equal weightage.

On the other hand, exponential smoothening, assigns different weights to different data points. The most recent data points receive the highest weights with the weights decreased as the data points move away in time. The weights assigned can be designed on the basis of chosen smoothening parameters.